Insights

A recent decision by the Maine Supreme Judicial Court makes it harder to foreclose in the state, especially where Mortgage Electronic Registration Systems, Inc. ("MERS") is involved. The court relied on a prior decision that MERS cannot foreclose in Maine and took it a step further to conclude that MERS cannot assign a mortgage. This case has wide-reaching impact because assigning a mortgage from MERS to another entity is a common practice in Maine and throughout the country.

In November of 2006, Scott and Kristina Greenleaf signed a mortgage that named Residential Mortgage Services ("RMS") as the lender and MERS as the nominee for the lender. The loan was later acquired by BAC Home Loan Servicing, LP f/k/a Countrywide Home Loan Servicing, LP ("BAC"), which later merged with Bank of America, N.A.

After the Greenleafs defaulted on their loan, Bank of America started foreclosure proceedings. At a trial in July of 2013, Bank of America presented exhibits including the original promissory note, the original mortgage, and an assignment of mortgage. The assignment of mortgage purported to assign the mortgage from MERS to BAC. The trial court granted a judgment of foreclosure. In response, the Greenleafs appealed contending, among other things, that Bank of America did not have standing to foreclose. The Supreme Judicial Court agreed, vacating the trial court's judgment and sending a shock wave through pending foreclosure cases throughout Maine.

In this latest look at standing, the supreme court set out a two-part analysis, making it clear that because foreclosure involves two documents - a promissory note and a mortgage securing the promissory note - standing to foreclose requires proof of the plaintiff's interest in (1) the note and (2) the mortgage.

The supreme court previously addressed the first part of the analysis in Wells Fargo Bank v. Burek, 2013 ME 87 (2013) relying on Article 3 of the Uniform Commercial Code to hold that a party is permitted to enforce a note if it is the "holder" of that note, meaning that the party is in possession of the original note that is indorsed to the bearer or in blank. Although the supreme court addressed ownership of the mortgage in prior decisions, this is the first time the supreme court was clear that proving ownership of the mortgage is part of the standing issue, rather than an issue of proof.

In Mortg. Elec. Registration Sys., Inc. v. Saunders, 2010 ME 79, the supreme court held that MERS does not qualify as a mortgagee pursuant to the Maine foreclosure statute, meaning that MERS cannot foreclose in Maine. The supreme court took this a step further in Greenleaf by concluding that MERS, as nominee, is not the true owner of the mortgage and thus it cannot grant to another person or entity any greater interest in the mortgage than it enjoys. Because the assignment from MERS to BAC granted to BAC only the right to record the mortgage, the Bank took only that same, limited right upon its merger with BAC. As a result, the Bank was not the owner of the Greenleafs' mortgage and it failed to establish standing to foreclose.

The true effect of Greenleaf on foreclosure in Maine will be seen in the coming months, but there is no question that this will slow process in a state still inundated with foreclosures.

Bank of America, N.A. v. Scott A. Greenleaf, et al., 2014 ME 89 (July 3, 2014).

Mary Kathryn Hawkins is an associate in the Maine office of Hudson Cook. Katie can be reached at 207-210-6836 or by email at khawkins@hudco.com.